Dr. Edwards Deming was invited to give a seminar about quality to
Japanese companies in 1950. At the time, Japanese products were
known as inferior products, but Deming predicted that if they followed
his methods, in five years they would be second to none. It only
took four years. This book is written by one of Deming’s
students, contrasting the traditional MBA management theory with
Deming’s principles.

Traditional American management theory says that quality is the
responsibility of the worker. To make sure that workers are
producing high-quality work, reward the best performers and punish the
worst performers. Provide concrete objectives, measure them, and
reward accordingly. Where relevant, establish quotas to push
workers. Inspect products to ensure quality. But quality is
a cost, so don’t inspect too much, and establish acceptable tolerances.

Let’s look at the implications of this. Most manufacturing
systems are in statistical control, which means that the system
produces random variations about a certain consistent value. If a
system is in statistical control, then the amount of defects is random
(within limits). Management wants to show they are serious about
quality so they tell workers that whoever has the least defects will
get a bonus and the most gets fired. Since the system is in
statistical control, some worker will randomly produce fewer defects
and get the bonus, while some unlucky worker will get fired. In
time, the worker previously hailed as a high quality worker will
randomly produce the most defects and get fired. In fact,
everyone will get fired. No matter how carefully the workers
work, they cannot change the purchasing department’s poor choice of
supplies (based on the lowest cost, even if a slightly higher cost part
would work much better) and they cannot change the manufacturing
procedure (even though the smart ones can tell you where all the
stupidities are). Instead of producing higher quality, it
produces fear of being fired in the workers (“Joe was a great worker,
but was a little short last month, so he was fired”). In fact, it
may produce lower quality or lower production, as workers take steps to
insulate themselves from random variations.

Seeing that things are not getting better, management will, of course,
have new objectives, which just continue to demoralize, because they
appear arbitrary (“the problem is really these lousy parts, but
management thinks that new computers will fix the problem”). In
fact, they probably are arbitrary, because management thinks it is the
workers’ responsibility to get quality and management’s job to find
ways to incentivize workers. And cut costs, speaking of which,
management decided to outsource a department, which was working fine
before, but the new (cheaper) outsiders just really don’t seem to care,
and now everyone hates the new system.

Sound like a Dilbert comic?

In contrast, Deming says that quality is the joy of workmanship; quality is not a cost, it is the end goal. It should be noted
that this is not saying that high quality necessarily implies high
tolerances or the finest materials. It is, instead, the
combination of good design and quality of manufacture.

One of Deming’s main points is that quality is management’s main
job. Only management can direct purchasing to purchase parts
which do the job well, even if they are a little bit more
expensive. Only management has the authority to change the
manufacturing procedure, after asking the workers for feedback on
things to improve and things that are frustrating about the
process. If a system is in statistical control, the workers can
not substantially affect their output.

Deming says to get rid of management by objective and management by
numbers. Management by objective is worse than helpful: workers will meet the objective, but often at the expense of something
else, probably less able to be measured, but which is at least as
important. Deming also says to get rid of performance reviews and
rewards/punishments. This simply causes fear, and motivates
workers to look out for themselves first and the company second.

A large part of Deming’s philosophy is continuous improvement. Because quality, pride in workmanship, is the goal, it is the
responsibility of management to be continuously increasing
quality. It is quality that a company is selling, even if
consumers don’t consciously realize it. Aguayo tells the story of
a Ford car for which some transmissions were made in Japan and some in
the U.S. The customers preferred the Japanese transmissions and
were willing to wait to get them. Upon inspection, the U.S.
transmissions were all within tolerance, but the Japanese transmissions
exceeded the tolerances, and as a result were quieter, smoother, and
more reliable. A company that is continually improving its
products will soon reach a point where other companies simply cannot
reach, because there are some unexpected benefits to improved
quality. Defect rates drop, which decreases costs more than
linearly, since the cost of a defect is much more than simply the
wasted cost of one product: there is shipping cost, cost of
diagnosis, the replacement cost, and the cost in customer
perception. Furthermore, as quality goes up, unexpected
improvements appear, such as the product taking less time to assemble
because the parts fit more reliably. So not only does the
customer have a better product, but the company increases profit!

One contentious aspect of Deming’s philosophy is that competition (in
the win/lose sense) is bad and destroys quality. A great example
is how most large companies deal with their suppliers. They push
for the lowest cost and increasingly lower costs every year, on the
incorrect theory that minimizing the cost of each part minimizes the
cost of the whole. Instead of taking an adversarial relationship
with suppliers, it is more beneficial to cultivate a relationship with
the supplier, give them some information about what you are doing with
the part, so that they can use that knowledge to improve areas that
would be of benefit to you. Ultimately, you and your supplier are
partners in delivering a product to the customer. Proctor and
Gamble experimented with partnering with their ad agency, giving them
more than the usual information about the products and the goals for
the ad campaign. The campaign was one of their most
effective. By contrast, while the book is too old for this, Dell
and Walmart constantly push their suppliers for a cheaper
product. Do suppliers like doing business with them? No. Are the products known for high quality? No. In
fact, TV manufacturers make a special, lower quality, version for
Walmart in order to meet Walmart’s cost requirements.

Another component of the Deming system is deep knowledge. In
order to improve a system in statistical control, one cannot simply
start fiddling with the knobs (“tampering”). Doing so will likely
make the system worse. Nor can one simply analyze defectives for
the cause of each defective and expect the system to
improve. One really likable manager did that for years
without changing the rate of defectives. Nor can you just inspect
the resulting parts: if the defect rate is fairly low, random
sampling will almost surely fail to find the defects, so you will need
to test them all. If the system operates in a way to avoid
defects, no inspection will be needed. In order to improve the
results of system in statistical control you must improve the system,
and to do that, you must understand how the system works.

Finally, an important part of Deming management is leadership. Leadership is not telling people what to do. Instead, a leader
“tries to create for everybody interest and challenge, and joy in
work. He tries to optimize the education, skill, and abilities of
everyone, and helps everyone to improve. Improvement and
innovation are his aim. A leader instructs. But instruction
means teaching not only what to do, but why.”

Aguayo wrote this book in 1990, when everyone was worried that Japan
was going to take over the U.S., so the book is more doom-and-gloom
than events have warranted. Still, the lessons are
timeless. Some years ago, the Johnson and Johnson decided they
could save costs on making Tylenol and other medications. If
quality is viewed as a cost center, Deming predicts that efforts to
control costs will reduce quality and potentially destroy the product
line. This year, the effects of the cost-cutting bore fruit as
the factory was discovered to have shockingly poor conditions and was
shut down by the FDA. Before the change to cost-cutting
management-by-numbers, that division was known for its high quality products. Johnson and Johnson’s consumer drugs were so unassailable that many of
them had no competitors, yet now they have been off the shelves for
months. As a contrast, for the past ten years Apple has been
cultivating a joy of workmanship, seeking to make the customer
experience top-notch. This desire has led them to innovate even
in the construction of their computers: a magnetic power cord to
avoid users tripping over it, milling out a solid piece of aluminum to
provide extra space for a battery without sacrificing structural
integrity, even going to the extent of drilling tiny holes so that the
“sleeping” LED shines through when it is on, but looks like metal when
it is off. Over the past 10 years, they have redefined what a
music player is with the iPod, they redefined what a smart phone is
with the iPhone (apparently competitors RIM and Microsoft did not even
think that the iPhone was technologically feasible when it was
announced), and the iPad has been selling really well and may possibly
redefine portable computing. Quality is the goal.

Review: 8.5 (+1 for content)

Aguayo gives many examples of the
failings of the MBA approach to management and the wisdom of the Deming
approach, and in so doing he has explained my indefinable disagreement
when people say that “a company’s responsibility is to earn as much
money as possible for the shareholders”. This is what makes big
companies soul-sucking and Dilbertesque, because a company sells a
product and makes money as a byproduct. People love companies
with a great product, but a company out to make as much money as
possible for shareholders is simply inhuman. Management by
minimizing finances ignores the human factors. Yet, the book
itself does not present the principles in a coherent way, and this
reviewer was left thinking that, as helpful as this book is, reading
Deming himself would probably be more informative. Indeed, in
Deming’s forward Deming says “New principles, carefully explained by
the teacher, may find no resting place in the mind of the student, yet
the student may accumulate a wealth of ideas worth remembering and
passing along. So it is with the content of Mr Aguayo’s book.”